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Why JPMorgan And Citi Are Bullish On Insurers

Private life insurers, which are slowly eating into the market share of state-run Life Insurance Corporation of India Ltd., will continue grow on the back of new businesses.

That’s according to brokerages JPMorgan and Citi, which said the insurance companies’ new business margins—a measure of profitability—expanded on strong performance of protection products like accident and life covers.

The market share of LIC declined for the seventh straight month in July in terms of new business premiums. India’s largest life insurer lost 4.5 percent of its share to 69.5 percent during the month, according to data compiled by the Insurance Regulatory Development Authority of India.

JPMorgan initiated a coverage on private life insurers saying the companies are now focusing on quality (product margins) over quantity. Citi, however, cut its target price for the companies even as it remains bullish.

New business for life insurance players is expected to grow over 20 percent, JPMorgan said, adding that India’s relatively under-penetrated life insurance market and rapid growth justifies their premium valuations over Chinese peers. Indian life insurers trade at a price-to-embedded value multiple of 2.5-5.2 compared to China’s 0.7, it said.

According to Citi, listed life insurers continued to increase the share of protection products in the quarter ended June. It now stands at 10 percent of the total premium compared with 7 percent in the previous financial year, it said, adding the value of new business margins expanded despite a high base of demonetisation-led sales in the first quarter of 2017-18.

Raises earnings estimate by 10-18 percent on rising new business share; cuts premium growth from 29 percent to 24 percent.

JP Morgan on ICICI Lombard General Insurance

Initiates coverage with a ‘Neutral’ rating and a target price of Rs 710, a downside potential of 11 percent.

Expects moderation in underwriting losses for non-life insurance companies in the next three years with a 5 percent underwriting margin enhancement. (Underwriting income is the difference between premiums collected and expenses incurred and claims paid out)

Expects to see a turnaround in underwriting losses in the next few quarters due to better risk selection, growth scalability and diversified products or geographic exposures.

JPMorgan is also bullish on the country’s largest non-life insurer and India’s only reinsurer—which went public over the last year. Initiating a coverage, the brokerage said they will benefit from the government’s crop insurance scheme.

JP Morgan On New India Assurance

Initiates coverage with an ‘Overweight’ rating and a target price of Rs 360, an upside potential of 36 percent.